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Vietnam to remove import duties for auto parts not available domestically
The proposal is part of the draft decree in replacement of Decree No.125/2017/ND-CP on export duty schedule, preferential import duty schedule and lists of commodities and their flat tax rates, compound tax rates and outside tariffs quota rates, aiming to increase the localization rate and enhance the competitiveness of Vietnam’s automobile industry.According to the MoF, it has come to the point for Vietnam to set up preferential import tariff, serving the purpose of promoting the development of the supporting industries, particularly automobile manufacturing and assembling in the 2019 – 2023 period.Local auto manufacturers previously voiced concern over the insufficient support from Decree No.125 for the automobile industry, as it failed to create considerable advantages for domestic cars over imported ones from other ASEAN countries.The auto parts manufacturing sector in Vietnam currently enjoys incentive policies for investments, but such incentives are not remarkably attractive compared to other sectors, leading to low localization rate.Moreover, domestically produced auto parts are also facing fierce competition from imported products in ASEAN, which are having zero import tariff under the effect of the ASEAN Trade in Goods Agreement (ATIGA).
As of July 2019, the sales volume of cars assembled domestically fell 14% year-on-year, while imported ones jumped 207%, according to the Vietnam Automobile Manufacturers Association (VAMA), in turn putting pressure on local producers.
Additionally, there has been a trend of FDI companies shifting priority to importing completely-built units (CBU), instead of assembling cars in Vietnam. This is due to the fact that most car importers have fulfilled requirements set in Decree No.116, which came into force in early 2018, specifying the regulatory conditions and licenses for automobile manufacturing, assembling, importing, maintenance, and warranty businesses.
The decree was a major reason behind the fall in imported car sales in 2018, down nearly 16% year-on-year.
Under this circumstance, without effective supporting policies in place, domestic cars would not be able to compete with imported ones, as prices of imported cars would be reduced by 23 – 25%, while the maximum reductions for domestic ones are in range of 12 – 15%.
Meanwhile, the MoF predicted the sale growth of passenger cars in the next five years would reach 30 – 40%, with sale number approaching nearly 1 million units per year by 2025, sparking concern that imported cars could dominate in this huge potential segment.
Auto expert Nguyen Minh Dong told Vietnamnet that production capacity of Vietnam’s automobile industry is equal to 20% of those in regional peers, while most products are basic products with low value, requiring stronger efforts from the government to give assistance to local supporting industries.
Dong expected a removal of import tariff for auto parts would help local companies reduce operation costs and improve competitiveness.
In another move, the Ministry of Industry and Trade is considering removing excise tax for qualified locally-made auto parts, while Prime Minister Nguyen Xuan Phuc is instructing government agencies to review the concept of the industry of car assembly to be high-tech manufacturing and thus they would enjoy greater incentives.
With more incentives in place and growing domestic market, prices of local assembled cars could fall 20 – 30% in the coming time, in turn enhancing its competitiveness against imported ones.